S z research article

12405 Wakara Ibrahimu Nyabakora et al. How macroeconomic variables affect banks’ performance in Tanzania
 

---

Commercial Banks listed in NIFTY, employing Correlation 
and Multiple Regression Analysis along with descriptive 
statistics, found negative and significant effect between interest 
rate and banks’ performance. This result was supported by 
Hamid, K., Ghosh, R. (2019) in their study investigating the 
impact of firms’ Specific attributes and macroeconomic 
conditions on profitability of banks listed in Dhaka Stock 
Exchange for the period 2004 to 2015, employing Pooled, 
fixed-effect, and random-effect regressions, found negative 
and significant effect between interest rate and banks’ 
performance. In our view, interest rate disables the bank 
customers on servicing their loans and so it cause 
nonperforming loans that disturbs the liquidity and 
profitability, and so, the interest rates have negative effects on 
bank performance. 
H
3
: Interest rates have Negative Impact on Banks’ 
Performance.
 
Regarding the exchange rate, Konadu, K. A., (2016), 
assessing the impact of macroeconomic variables on 
profitability of public limited commercial banks in Ghana for 
the period 1980-2014 employing Autoregressive Distributed 
Lag (ARDL) estimation technique found the positive and 
significant effect between exchange rate and banks’ 
performance. However, Emase, M. A. (2017), conducted a 
research on the effect of macroeconomic factors on bank 
profitability for 11 listed banks in the NSE using Panel data 
regression analysis with fixed effects, and found the negative 
and significant effect between exchange rate and banks’ 
performance.
H
4
: Exchange Rate has Negative Effect on Banks’ 
Performance. 
 
Government debts as one of macroeconomic factors have 
impact on the banks’ performance, the impact of which depend 
to the countries’ economic status (Panagiotis Pegkas, 2018). 
For the developed economy it does not harm much, but for 
developing countries, the effect is harmful. This is due to the 
result of the use of debts, is it for development or for recurrent 
use? The answer of which can determine whether the debt can 
benefit the economy or not.
In the long run, debt holders charge high interest due to the 
debt to GDP ratio increases to the extent of claiming the 
compensation for the marginal risk they won't be repaid. This 
increase on interest rates results to slow the economic growth. 
Supporting the above notion, 
Eze, Onyebuchi Michael; Nweke, 
Abraham Mbam, and Atuma Emeka (2019) assert that, the 
government debt has negative effect on the economic 
performance. 
H
5
: Government Debt has Negative Effect on Banks’ 
Performance.